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Capitalism by Any Other Name

I've been thinking about the term "capitalism" since Frank Luntz, the renowned pollster, told Republicans to quit saying it. The Occupy Wall Street movement has turned "capitalism" into a dirty word, he said. If Republicans want to win in 2012, they'd better stop worrying and learn to love "economic freedom" instead.

It's a stunning turning of the tide. No matter the kind of conservative—Southern, evangelical, libertarian, Tea Party, or old-school Rockefeller patrician—conservatives have never hidden their allegiance to the moneyed class and power elite. I have never in my lifetime seen a conservative counsel against expressing one of the major tenets of conservative ideology. You might as well advise the GOP to stop trying to repeal the New Deal and start defending labor rights.

I've been thinking about this rhetorical shift while riding the bus in New Haven every day. The passengers are typically at the bottom of the 99 percent. Some are destitute; some are unemployable. Most are working poor, people with full-time minimum-wage jobs who cannot rise above poverty. I wonder what they'd think of John Mackey's definition of "economic freedom." The CEO of Whole Foods wrote in The Wall Street Journal in November that the phrase means "property rights, freedom to trade internationally, minimal governmental regulation ... sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange." My guess is they'd think very little of it.

Mackey's definition is meaningful only if you already have money. Real money. Money you don't have to spend right away, money that can sit around for a while. But when you don't have real money, it has nothing to do with "economic freedom." If Mackey were defining "capitalism," that would be one thing. The working person might have nothing to say to that. The abstract nature of "economic freedom," though, invites interpretation, and, for the working person, it has everything to do with making a living.

Though "economic freedom" is now synonymous with capital, it used to be synonymous with labor. It makes sense. Government isn't the largest force in our lives. Corporations are. They dictate when to work, where and how. Or none of the above if you've been laid off. They don't want to pay for full-time work, health care, or pensions. During their golden age, unions were seen as a step toward greater security, which was a step toward greater freedom. If you, as an individual, didn't have to worry about bargaining for wages, retirement, or life insurance (because your labor posed actual physical risk), you were freed of that burden. In other words, economic freedom wasn't freedom from the rule of government; it was freedom from the rule of corporations.

More profoundly, labor's "economic freedom" is in keeping with the grandest narratives of American history, with colonists fighting the British colonizers, slaves fleeing their masters, women struggling for the right to vote, African Americans appealing for their inalienable rights. In each of these, a David battles a Goliath—and the underdog wins. Only in America. Where is the moral thrust of capital's "economic freedom" narrative? Making more money? Nah.

Some have warned that Luntz is setting a trap. The temptation among progressives has been to talk even more about capitalism since Luntz is "frightened to death" by the Occupy movement. If they do, critics say, Republicans will be able to portray progressives as socialists. No doubt they will, but not because the Occupiers are focused on capitalism. Conservatives are willing to cry socialist anytime something irritates business. It doesn't take raising a country's collective consciousness to the dangers of corrupt capitalism to draw rhetorical fire like that.

Talking about capitalism in America is somewhat like talking about class. As a social reality, it's so familiar as to be invisible, which is convenient for those, like the moneyed class and power elite, who don't want to talk about it. But once you start talking about an invisible force that can affect anyone, you start wondering why it doesn't benefit everyone. That, to me, is what the Occupy movement needs to keep doing: pointing out what should be obvious to all of us.

An enormous propaganda machine paid for by capital has made it necessary for thousands of people to march in the streets and camp in public parks to make what should be truly unremarkable observations: Rich people don't always deserve their riches, and people who work hard often can't make ends meet. This is about capitalism, because this is about the nature of work—and the enormous constraints faced by Americans employed or not. So, no matter what kind of rhetorical hocus-pocus Republicans come up with next year, no matter what they call capitalism, the elephant is still in the room. There's no replacing plainspoken truths.

Comments

That was a well written and cogent overview of capitalism today. What amazes me is how the right has manage to vilify the working class and the poor. As a historian I know that most of the working, sweating, living, and dying in this country has been done by the working class. It is stunning to me that somehow the narrative in America has been to equate monetary wealth with being "good" and "hard-working." If wealth was merely a matter of hard work and hard work brought about riches migrant farm workers would be millionaires.

My father, as a blue collar worker, was able to raise a middle class family on his income alone. Now my wife and I (both with graduate degrees) have to have two incomes just to stay in the middle class (and we have to deal with the problem of enormous student loan debt.) What that means is in the last 30 years working and middle class Americans have generally been forced to double their labor merely to stay in the same place economically.

How can it be that 30 years of economic growth has only substantially benefited the top economic strata of society? Something is inherently wrong with such a system.

I identify as a libertarian (though I sometimes qualify that as "left libertarian," "communitarian libertarian," or "pragmatic libertarian" because of all of the whacko themes that the term "libertarian" attracts). I also am a great believer in the importance of economic freedom, and have encouraged John Mackey to use the term (he has been a principal funder of FLOW, the non-profit he and I created eight years ago). I'm perfectly happy to defend capitalism as well, as the greatest liberator of poor people that humanity has ever discovered, but there is an empirical literature on "economic freedom" that allows for more specific analysis than is possible with a term as vague as "capitalism."

On a global basis, economic freedom is highly correlated with GDP per capita. There are no poor nations that have high levels of economic freedom and no rich nations that have low levels of economic freedom. The developing world is massively over-regulated, which is part of the reason why it is poor. Denmark ranks more highly on economic freedom indices (Cato and WSJ/Heritage each have their own indices) than does any developing nation. On a global basis, economic freedom is arguably the most important moral cause on the planet for those who care about mass poverty. Gurcharan Das once estimated that based on socialist rates of growth India would reach a U.S. standard of living in 2300, whereas given post 1991 rates of growth India should reach a U.S. standard of living in the mid 21st century. If one accepts that increased economic freedom resulted in the increased rates of economic growth, then that one instance of increased economic freedom may result in a billion people escaping poverty 250 years earlier than they otherwise would have done. Advocates of economic freedom don't care about the poor? Huh? Show me a socialist achievement of that magnitude.

If Stoehr wants to argue that improving developing world business environments to increase rates of economic growth is more complex than simply reducing taxes and regulations, then we are in agreement and can go on to a more important conversation about how to improve institutions such as the legal systems of developing nations. But here he is not interested in this kind of conversation because he believes he understands the motives of those who advocate for economic freedom.

The evidence that increases in economic freedom will improve the U.S. economy are more controversial, the controversy typically taking place along partisan lines, but there are certainly credible economists who believe that increased economic freedom would be good for the U.S. economy. For instance, here is Nobel laureate Robert Lucas making a case that the decreased economic freedom is the reason why the U.S. economy has not yet rebounded from the 2008 crisis, http://www.econ.washington.edu/news/millimansl.pdf. This comment is not to go into the "dueling Nobel laureates" game (I'm sure Krugman and Stiglitz would disagree with Lucas, whereas Becker and Smith would probably agree), but merely to point out that an insulting partisan hack piece like this fails to acknowledge that there are, in fact, credible economists who are concerned with decreases in economic freedom.

Moreover, the issue of economic freedom should not be regarded as a partisan issue anyway in light of recent U.S. history: According to Cato's index, economic freedom in the U.S. increased from 1980 to 2000 (with Bill Clinton continuing the increase started under Reagan) and then has declined from 2000 to today (with Obama continuing the decline in economic freedom begun under G.W. Bush.). By the end of GW Bush's presidency he had already reduced economic freedom in the U.S. to below 1980 levels, so that Bush alone (without Obama's further reductions in economic freedom) put the U.S. back in late 1970s Carter territory.

Perhaps Stoehr is partisan and malicious enough to claim point-blank that, as someone funded by Mackey and other wealthy individuals I am part of the very "propaganda machine paid for by capital" that he decries. Insofar as I have the time to read and respond to this article there is some truth in that claim. But I developed my libertarian views fifteen years before meeting Mackey, based on the belief that economic freedom in fact did help the poor (views at which I did not arrive lightly; I did graduate work at Chicago under Becker, initially as hostile to economic freedom s is Stoehr). I then spent fifteen years in K-12 education, starting as a public school reformer and ultimately creating a charter high school ranked the 36th best public high school in the U.S. When I was saying the same things but paid by funds coming from the State of NM was I then part of a "propaganda machine"?

Had it not been for partisan attacks on educational freedom (Bill Richardson's policies forced me out of the school I was leading in NM) I would today be leading a charter school chain that, I believe would have been more effective at helping poor children than are KIPP Academies (which I respect). While people like Stoehr are indulging in partisan rants, teachers unions and their allies are no doubt reducing the prospects of poor children across the U.S. right now. Does he rant against the teachers unions? Does Stoehr support increased access to good education for poor children even when the teachers unions are against it? I hope so.

Of course "Rich people don't always deserve their riches," and of course "people who work hard often can't make ends meet." These facts are irrelevant, however, to how we can create a more just and healthy economic system. I have spent most of my life at or near the poverty line, and most of my family is still below the poverty line. My wife is from Senegal, where almost everyone is MUCH poorer than are the average "poor" Americans (who almost all be regarded as middle or even upper-middle class people in Senegal based on their standard of living). As someone who has spent all of my life either poor, living among the poor, and/or trying to help the conditions of the poor, Stoehr's notion that only wealthy elites have opinions that he does not share is manifestly false. In Senegal (ranked 154 out of 183 nations on the World Bank's Doing Business index), the heavy-hand of government is palpable, and I know many truly poor people who are eager to be free of the excessive regulation that is ubiquitous.

With respect to the U.S. poor, I would be happy to support an increase in the Negative Income Tax or a Citizen's Dividend out of my concern for the American poor (including my sister, whom I've invited to live with my wife and I, but I wouldn't mind if she could afford to live on her own a while longer) - but I would want to ask for increased economic freedom and school choice in exchange, to ensure that the American poor are better off for the long run. Increased economic freedom, and increased educational freedom, are crucial to expanding the pie so that all are better off.

I am certainly as disgusted by any OWS protestor that as a consequence of the 2008 crisis those in the financial industry who caused the crisis walked away in the 1%, and I'm as disgusted by anyone in the Tea Party that U.S. taxpayers were forced to pay for those bad decisions. Eliminating financial industry subsidies (including bailouts, Fannie/Freddie, FDIC, and Fed monetary manipulations such as "the Greenspan Put") are crucial to ensuring that we don't keep forcing American taxpayers to give money to some of the richest people in human history every 20 years or so (see the brilliant blog "Macroeconomic Resilience" for why). There are many important policy challenges needed to improve the lives of the poor and to improve both the long-term and short-term health of the U.S. economy. But the shallow partisanship of an article like this does nothing constructive. It 100% atavistic tribalism, not intellectual engagement.

Michael Strong wrote, "On a global basis, economic freedom is highly correlated with GDP per capita. There are no poor nations that have high levels of economic freedom and no rich nations that have low levels of economic freedom."

True enough, but GDP per capita does not measure the distribution of income and wealth, it merely divides the national income by the population to get an average. The current debt crisis is a consequence of too large a share of income going to capital and too little to workers. "Capitalists" make money by owning. "Workers" make money by working. Investors/capitalists comprise only about 5% of the population, while workers comprise 95%. Workers lack sufficient incomes to purchase what they produce, so investors "lend" them money to keep buying stuff and keep up profits from selling stuff to workers. So workers spend all their income PLUS they spend the money they borrowed, which adds demand to the economy beyond what incomes alone would enable. If worker incomes are rising, and if at some point workers use their rising incomes to repay past consumption while maintaining current consumption, then the economy may not grow but it may not decline into recession either. For the past 40 years worker incomes have not been rising, so the only way they can repay their debts is to drastically reduce consumption and devote their current incomes to debt paydown.

But consumption is 70% of GDP, so this straightforwardly causes recession, with loss of sales and loss of profits, which leads to loss of employment and loss of incomes, which makes it impossible for unemployed people to pay their debts. When lenders come to the realization that borrowers can NEVER repay their loans, so that all of their "financial assets" (i.e. borrowers' promises to repay principal plus interest) are worthless, we have "debt crisis". When "economic freedom" only benefits investors and not workers, stresses build until the system fails, as it is doing now. So far rich people have been able to bail themselves out of their bad loans to bankrupt mortgagors and consumers, on the taxpayer's tab, but the taxpayer is the same bankrupt worker who cannot pay his debts so that leaves "the rich" holding a lot of worthless promises to repay debts out of nonexistent incomes. So now the only way for 'investors' to collect on the debts is to violate the constitution, the rule of law, democracy, and pretty much all the other values "America" stands for, by buying up the government and having the governing authorities bail them out of their mistakes by illegally transferring their losses onto the victims rather than the perpetrators.

This is "capitalism by any other name": private gains, social losses. These thieves should be ashamed of their myopic stupidity in lending all their money to profligates who routinely spend more than they earn, but greed and ego apparently trump conscience and self-awareness, so they continue trying to power their way out of their self-destruction.

Read the paper, "Inequality, Leverage and Crises" by IMF research economists Kumhoff and Ranciere for a rigorous demonstration that inequality causes crises, and that the mechanisms are "comprehensible" to mere mortals, so that all the financial geniuses have no excuse for not seeing this coming a long long time ago.

The republicans pulled the age old proven tact of demonizing the other, creating an enemy and then exaggerating the power of the other in order to get people to surrender their individual rights for the common good. First they demonized the poor, Reagan was good at that. Then they went after the unions which were crooked, uneducated thugs who took advantage of business and interfered with profits. Those unions were just undeserving thugs who wanted to get paid for doing little or nothing. then of they went after children (they don't vote) and Medicaid was an easy target. They tried to get those old seniors sucking on the national teats, but at least the elderly had the people power and the vote to fight back. The republicans divided the nation with culture wars: christians against muslims, gays, and of course them liberals would take away the GUNS. The Bushies made govt incompetent and inefficient and they politicized our DOJ making it impotent. They milked 9/11 for every prejudice and bigotry they could contrive in order to pass draconian laws attacking the basic rights delineated in the US constitution. It wasn't hard, the neocons were persistant: Never admitted mistakes, never took responsibilty and the MURDOGS at Fox and the KOCHroaches paid big to justify their egregious acts in the name of national security. They spread lies, all the while shrinking the middle class. Americans were snookered, their patriotism used against them, accepted the fact they were unworthy en masse of a fair wage for work, because they really were lazy, undereducated and ill prepared for the 21st century. Our govt failed to protect the common good. The bulwark against "those who would be king" as warned by the founders, caved to the special interests, and ignored the laws of the land to achieve personal and political objectives. We are at the precipice and we have to decide. Capitalism with a Conscience was always the goal of Adam Smith, he never proposed that FREE MARKETS should be unregulated or free from social responsibilities. He believed that capitalism could "lift all boats" although he didn't say it. We have to decide and if ever there was a clear choice between Political GOOD and evil, it is now.

Paul Krugman said it best yesterday. The real republican ECONOMIC POLICY is to "feed the pony pennies, expect him to poop out dimes". It doesn't work, no matter how they mix the brew and it's time for the american people to get it. Boehner and the repugs are enjoying their blood sport at the Roman Coliseum. It is time for the ppl of VA to topple the ROMAN EMPIRE and Caesar wannabes.

The author makes a very good point about Republicans treating any regulation of corporations as "socialism." So regulating toxic carcinogens from oil refineries, requiring labels on cigarrette packages, requiring banks to have deposit requirements to get federal deposit insurance, sending inspectors to mines to reduce cave ins are all "socialism." Brilliant.

Mr. Strong – My observation is that your rant seems far more ideological and emotionally based than the article you characterized as partisan, offensive, libel, shallow, possibly malicious and "100% atavistic tribalism." I took the time to read it carefully. ¬¬
On the positive side, I thank you. I might have breezed over the article, agreeing with it and moved on, but your comments caught my attention. I am grateful that in picking apart your unsubstantiated claims, lack of logic, and what appears to be a case of mad projection regarding partisan ranting the issue raised by Mr. Stoehr was brought home to me much more forcefully.
Some of us already knew that the Republican party had been advised (based on the results of recent polling regarding Americans' attitudes) to change their rhetoric, using "economic freedom" in place of "capitalism" because Americans are not currently seeing ‘capitalism’ in the best light.
You did not address this main point at all. Not at all. You claim that "economic freedom" as YOU define it would result in a rich nation. Someone else has already addressed the fallacy in your proposal as it does not address the inequality which IS at heart in the discussion. Without establishing a basis, you substitute"If" as in "If one accepts that increased economic freedom resulted in the increased rates of economic growth [we haven’t], then that one instance......." and set up a scenario (India -- supported only by a theory where miracles would happen (growth rates realized under the 'economic freedom' versus "socialist rates. “)…
It was quite a claim that all hangs on the big IF - that was not supported in the first place. In the second place, the so-called socialist rates were taking place in a country with great wealth inequality (and a caste system, if memory serves). Rounding out this long paragraph is another fallacy of false choice of 'economic freedom' as you define it or socialist achievement and THEN challenge us to match the miracle that has only existed in someone's unproven theory! Wow.
Next, we're treated to the false premise "If Stoehr wants to argue that improving developing world business environments..." It may be what YOU would like to discuss, but he's discussing domestic policy in the US. Discussing the potential improvements of legal systems in developing nations isn't the point either! That has nothing to do with the topic of discussion.
Your entire screed is baseless. See the very beginning of the article where the Republican strategist is quoted. It's not Stoehr who makes the issue partisan!! It seems some have coopted the language to define ‘economic freedom’ as something that has no resemblance to those words as I and most Americans understand them . Mr. Stoehr correctly brings this up as the major issue that you have completely ignored in your rant. The very definition you referred to of "economic freedom" has everything to do with property rights and says nothing about economic freedom for laborers without capital or property. In fact, it seems any legal protections against exploitation of desperate laborers would be off the table.
THAT is where Mr. Stoehr’s excellent spotlight shines. In what world is indentured servitude (which is where we seem headed) considered economic freedom? Even in our colonial times, the servants may have received a 'freedom package' after a few years and a few acres of land – the very property that seems to be the only thing some think deserving of protection by government force.
Another paragraph launches into the school choice issue and union bashing - while accusing Stoehr and another of partisan attacks and partisan rants. If this is your idea of 'intellectual engagement,' I am glad my kids were not subject to your education policies.
Mr. Hermanutz and CarmanK both gave excellent responses without calling you on the many flaws your rambling, pointless screed.
Mr. Stoehr brings up the critical issue that we STILL have not brought into the national discussion. Perhaps the possibility that we should discuss the very decline and near impossibility of true economic freedom for most Americans under conditions of high unemployment and low wages while social programs are cut to the bone (AND calls for the poor to put more tax “skin in the game”) so that the wealthy benefit from the raving ideology that has so obviously failed so many .... is what Mr. Strong and the Republicans are so fearful of.